Subprime Lending Crisis not a Trigger to Investigate
Company Stock Offering

February 11, 2009 (PLANSPONSOR.com) - The U.S.
District Court for the Southern District of Ohio has
determined that Huntington Bancshares Inc. did not breach its
fiduciary duties under the Employee Retirement Income
Security Act (ERISA) by continuing to offer company stock as
a retirement plan investment during a period when the company
was experiencing a financial downturn due to the subprime
mortgage crisis.

In dismissing participants’ claims, the court
agreed with Huntington that it was simply part of
“the unprecedented, ongoing credit crisis that has
negatively impacted the stock price of banks and other
corporations across the country whether these businesses
were ERISA employers or not.” The opinion said ERISA
imposes no duty on plan fiduciaries to continuously audit
operational affairs, but that a duty to investigate only
arises when there is some reason to suspect that
investing in company stock may be imprudent. “This type
of general news information is not the type courts have
found to be sufficient to trigger the duty to
investigate,” the court said.

“[I]t is clear that the federal courts are
currently experiencing a significant rise in “stock drop
cases” due to the current status of the Stock Market and
the economic climate in general, which of course includes
the subprime lending crisis. However, ERISA was simply
not intended to be a shield from the sometimes volatile
financial markets,” the court concluded.

Huntington
noted that its stock is owned by several large, public
pension funds, which collectively have increased their
Huntington holdings by over 137% over the class period, and
the court agreed that this fact prevents a finding of
imprudence in continuing to offer Huntington stock and/or
not liquidating the plan’s holdings of Huntington stock
during the class period.

The court also disagreed that Huntington violated
Sections 404 and 405 of ERISA, 29 U.S.C. Â§Â§ 1104, 1105,
by failing to provide complete and accurate information
to the participants in the plans. The opinion pointed to
numerous specific public disclosures that Huntington made
regarding its potential exposure to credit and market
risk both before and throughout the class period, and the
court noted that Huntington also unequivocally disclosed
its relationship with Franklin Credit, which participants
said caused the stock to become an imprudent investment,
in a publicly-filed “Third Quarter Analyst Handout” that
specifically discussed Huntington’s exposure to Franklin
Credit and the subprime loan market.

The participants claimed that Huntington breached
its fiduciary duties to them when it merged with Sky
Financial Group, Inc., increasing its risk of loss
greatly by subjecting itself to $1.5 billion of subprime
exposure through Sky Financial’s relationship with
Franklin Credit. They alleged that Huntington stock
became too risky to be considered a prudent investment
and that Huntington failed to take any action to protect
the assets of the plan from an “enormous, and entirely
foreseeable,” risk. Participants claimed Huntington’s
actions caused over $100 million in losses to the
plan.

The court disagreed, saying Huntington’s decision
to merge was a business decision and is not conduct
governed by ERISA. It also contended the merger did not
constitute taking on massive subprime exposure. The
opinion said the loans constituted just 3.9% of
Huntington’ s total loans and leases and just 2.8% of
Huntington’ s total assets.

The stock fund was one of up to 20 different
investment choices offered by the plan, and the plan
mandated that Huntington stock be offered to participants
as an investment choice.